Compute the PI Statistic for Project Q and Advise the Firm

question 71

Multiple Choice

Compute the PI statistic for Project Q and advise the firm whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent.
Project Q

• A)The project's PI is -8.70 percent and the project should be rejected.
• B)The project's PI is -11.70 percent and the project should be rejected.
• C)The project's PI is 3.70 percent and the project should be accepted.
• D)The project's PI is 5.70 percent and the project should be accepteD.Step 1: Find NPV using financial calculator: NPV = -86.95; Step 2: -86.95/1,000 = -8.70 percent and since PI < 0 reject.

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Definitions:

Tea Harvest

The process of collecting the mature leaves from tea plants, typically occurring seasonally, which impacts the supply of tea in the market.

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, leading to market stability.

Equilibrium Quantity

The quantity of goods or services supplied is exactly equal to the quantity demanded at the market price.

Upward-Sloping Demand

A representation typically contrary to the law of demand, suggesting that as prices increase, the quantity demanded also increases. Generally, this is indicative of Giffen or Veblen goods.